alstry (35.28)

America's MISLEADING Headlines

12

In the past few weeks, I have read a bunch of stories how home sales rebounded in April. Today, we find out why.....foreclosures up 65% from all ready high levels. In CA, foreclosures accounted for 3/4 of all sales in April!!!!!!

Could you imagine if 3/4 of Americans who engaged in a conjugal relationship in April was raped. Would the headlines read:

Fitch Ratings agency said Wednesday that global banks have disclosed 80% of their projected losses on subprime mortgage-related investments, making further ratings actions minor. "As a significant proportion of the losses have been disclosed, further ratings action arising from ABS-CDO and subprime RMBS exposures is likely to be minimal," Fitch analysts said in a report. The ratings agency estimated that losses from the collapse of the $1.4 trillion subprime mortgage market could eventually total as much as $550 billion, if valuations were calculated using subprime securities indexes ABX and TABX.

Keep in mind, the average coffee-swilling newsroom drone has little understanding of these issues, and cares even less. He's got low wages, the death of the medium, and rising gas and food prices to worry about. Most can't be bothered with noting, let alone comprehending, the important nuances of the ongoing bubble burst.

The current foreclosure-buying logic is similar to the psychology which causes the right shoulder of the Head & Shoulder pattern. Most buyers are amateurs who missed the buses and are now getting on the foreclosure buses, literally, to buy the houses at a "bargain".

I know some of those people. They know next to nothing about true real estate investment; about consumer debt level; about the surplus in vacant houses; about MEW, CDO, CDS, Level 3 assets, or care about negative cash flow. All they know is that prices were much higher a few years ago so they bet that prices will go back there again in the future. That's what people who buy stocks in a right shoulder pattern would argue.

Assuming that the real bargain hunters do not need any stinking buses to take them around (and compete with dozens of others for the same houses), I bet that the housing market will only bottom after there are no more bus tours to buy foreclosed homes. Most people will simple yawn when hearing about foreclosed homes by then.

BTW, I read last year about a house in Denver which got foreclosed 4 times in about as many years. I suppose the short-term owners who bought that foreclosed house the first 3 times thought that its price was as cheap as it could be since it was foreclosed. The same logic prevails here in CA. Some of these houses will be foreclosed multiple times.

It is first report trying to estimate subprime losses. Fitch has given three numbers between $401 billions and $7xy billions. However they think that $401 is the most accurate.

That gives rough estimate regarding accuracy of the estimate.

This estimate is as per April 2008. It is the total subprime loss as per situation on end of April. Bottom line could be worst or better, time will tell.

Fitch estimates, that half of loss is occured at banks and half atinsurers and hedge funds.

Banks have reported 80% of the loss. THAT IS NICE WAY OF SAYING THAT BANKS ARE LYING FOR REMAINING 20%!

You can extrapolate ALT-A loss, using other Fitch reports and New York Fed page.

But, PD and LGD are golden numbers. Download the report, write down PD and LGD (probability of default and loss given default) and you can calculate loss for given asset.

So if you follow FloridaBuilder advice on checking 10-Q reports for banks, and check loan portfolio, you can USE THIS Fitch report, take particular loan value, multiply it by PD and LGD, and you can estimate loss.

For example, mortgage loss according to year of origin is as following :

2005 ... 0,18 x 0,55 = 0,10

2006 ... 0,36 x 0,58 = 0,21

2007 ... 0,42 x 0,61 = 0,26

banks are usually have like ~ 1%..2% or reserves for non-performing loans. Well, according to Fitch, it should be between 10% and 26%.

ABS-CDO Mezzanine loss ration can be good proxy for HELOC as HELOC is also second lien.

Mezzanine losses are between 30% and 85%. Check another Fitch report regarding home equity, where states that banks have been using 2% of reserves and Fitch used 8% for stress test.

Using Fitch reports for drivers of subprime and Alt-T default rates, you can model ALT-T losses based upon subprime losses. I bet numbers will be similar to above and well beyond bank reserves.

This Fitch report is golden.

Oh, and here is my breaking headline:"BANKS HAVE BEEN LYING ONLY FOR 20%!"